In its first year of operations Tower Ltd purchased and paid for widgets costing $50,000. During
that year Tower Ltd sold 60 per cent of the widgets. The widgets on hand at the end of the year
cost $20,000. The sales were on credit terms. Tower Ltd received $37,000 in cash from
customers and $3,000 remained uncollected at the end of the year. During the last quarter of the
year of operations Tower Ltd entered into a property insurance contract for losses arising from
fire or theft. The annual premium of $4,000 was paid in cash and the insurance expired nine
months after the end of the reporting period.
Calculate Tower Ltd’s profit for the first year of operations on an accrual basis and on a
cash basis. Explain the difference between the two measures. Which of the two profit
measures is more useful for assessing Tower Ltd’s performance during its first year of
operations? Give reasons for your answer.

  1. 👍
  2. 👎
  3. 👁

Respond to this Question

First Name

Your Response

Similar Questions

  1. College Accounting

    P2-1A Frontier Park was started on April 1 by C. J. Mendez and associates. The following selected events and transactions occurred during April. Apr. 1 Stockholders invested $40,000 cash in the business in exchange for common

  2. economics

    Suppose the price of widgets falls from $7 to $5 and consumption of widgets rises from 15 widgets a month to 25 widgets. Calculate your price elasticity of demand of widgets. What can you say about your price elasticity of demand

  3. accounting

    A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000).

  4. accounting

    The Delicious Cake Factory owns a building for its operations. Delicious uses only half of the building and is considering two options that have been presented to them. The Candy Store would like to purchase the half of the

  1. Math

    Oaktree Company purchased a new machine and made the following expenditures: Purchase price $45,000 Sales tax 2,200 Freight charges for shipment of machine 700 Insurance on the machine for the first year 900 Installation of

  2. Accounting

    Dristell Inc. had the following activities during the year (all transactions are for cash unless stated otherwise): A building with a book value of $400,000 was sold for $500,000. Additional common stock was issued for $160,000.

  3. Accounting

    Adelphia Corporation, which uses absorption costing, just completed its first year of operations. Planned and actual production equaled 13,000 units, and sales totaled 11,700 units at $184 per unit. Cost data for the year are as

  4. business math

    A truck costing $25,000 with a residual value of $5,000 was purchased by Rim Corporation. The truck’s estimated life is 10 years. At the end of Year 2, what is the book value using declining-balance method? Assume a depreciation

  1. accounting

    Andy Wright, D.D.S., opened a dental practice on January 1, 2008. During the first month of operations the following transactions occurred. Performed services for patients who had dental plan insurance. At January 31, $875 of such

  2. accounting

    Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $11,000 at the end of

  3. accounting

    a company purchases a used machine for $178,000 cash on January 2nd and readies it for use the next day at $2,840 cost. On January 3rd, it is installed on a required operating platform costing $1,160, and is further readied for

  4. accounting

    During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $64 per unit) $ 1,216,000 $ 1,856,000 Cost of goods sold (@ $32 per unit)

You can view more similar questions or ask a new question.